Health district takes hit on bonds

Palomar Pomerado rating downgraded

PALOMAR POMERADO HEALTH

Took on its current name in 1984; formerly called the Northern San Diego County Hospital District.

Operates Palomar Medical Center, a 324-bed facility in Escondido, and the 107-bed Pomerado Hospital in Poway.

Building an 11-story, 288-bed hospital in Escondido, slated to open by 2012.

Generated about $420 million in health care revenue in fiscal 2008, which ended June 30.

Operating with a $429 million budget in the current fiscal year.

NORTH COUNTY 
A Wall Street firm has downgraded the bond rating for Palomar Pomerado Health, a move that will increase interest rates on new debt for the North County public hospital district.

Moody's cited a nearly $25 million gap between budgeted and actual income last year, as well as uncertainty over the ultimate cost of the district's ambitious construction program.

“The outlook remains negative, reflecting ongoing challenges facing the organization,” the credit-rating agency wrote in an analysis issued last week.

The health system's executives said they have fixed some of the problems and are addressing other concerns.

Moody's lowered the district's rating by one notch – from A3 to Baa1. The new rating still classifies Palomar Pomerado as investment-worthy.

It applies to long-term bonds sold by the district and backed by revenue from taxes and income at Palomar Medical Center in Escondido and Pomerado Hospital in Poway.

Moody's review primarily covered fiscal 2008, which ended June 30.

The district's managers had projected a $24 million income for the year. Instead, they ended up with a $600,000 deficit.

They blamed a series of costly events, including an increase in low-paying Medi-Cal patients, higher-than-expected use of contract workers, wildfires that closed Pomerado for several days, and large bills from several patients who had to receive care from other health providers.

“The organization recognized that the operating performance of 2008 was not a sustainable performance,” he said yesterday.

Hemker and other district managers responded by making a number of changes designed to cut costs.

They laid off 86 workers last summer, reduced dependence on temporary nurses, and raised insurance coverage for district patients who receive care from other health systems.

For the first seven months of the current fiscal year, Palomar Pomerado has made $14.28 million, just shy of the $14.32 million that was budgeted, Hemker said.

“That validated that 2008 was not the start of a trend line for this organization,” he said.

The district's officials also have tried to control rising expenses associated with a nearly $1 billion expansion plan by scaling back some of the projects.

Executives are looking for ways to reduce the cost of building a 288-bed hospital in Escondido, which was projected in 2007 to cost $872 million but has risen to $957 million. The hospital is under construction and scheduled to open in 2012.

Moody's analysis gave the district credit for those efforts, but noted that 2008 was the third consecutive year in which the health system failed to reach its earnings goals.

In 2006, Palomar Pomerado generated $16 million in income, compared with its budgeted amount of $18 million. The gap widened slightly in 2007, when actual income totaled $17.7 million, compared with a budgeted amount of $21 million.

“The hospital hasn't been able to project the financial impact of the new economy accurately, which is not unusual,” said Nathan Kaufman, a health industry consultant in San Diego.

“Moody's is concerned about that, because if they are not able to project performance on a year-to-year basis, what's going to happen several years out when this new (hospital) is built?” Kaufman said.